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Ratings agencies downgrade the State of Illinois to virtual junk

Ratings agencies downgrade the State of Illinois to virtual junk

In a place where they have the largest migration of people leaving the state, and are near the top of the list for financial insolvency in the country, on June 1 the ratings agencies of Moody’s and S&P downgraded Illinois’ credit rating to just one step above junk.

Ever since the 2008 financial crisis the state of Illinois has seen its budget deficits go up, its crime rates skyrocket, its taxes increased while at the same time having the most underfunded pensions in the country, and having more people leave the state than anywhere else.

The monetary problems plaguing the state of Illinois (not to mention its public pensions) have been widely documented here over the past few years, and today the rating agencies finally noticed, when in the span of a few hours, first S&P, then Moody’s downgraded Illinois to BB+/Baa3, respectively, both just one notch above junk, the lowest rating ever given to a U.S. state, as both agencies cited a long-running political stalemate over a budget shows no signs of ending.

In the first downgrade, S&P warned that Illinois is at risk of soon losing its investment-grade status, an unprecedented step for a state that would only deeper the government’s strain. Bypassing its traditional 90-day review, S&P said Illinois will likely be downgraded around July 1, when the new fiscal year begins, if leaders haven’t agreed on a budget that starts addressing the state’s chronic deficits.

In a statement, S&P analyst Gabriel Petek said that “The unrelenting political brinkmanship now poses a threat to the timely payment of the state’s core priority payments.”

The S&P analyst added that “the rating actions largely reflect the severe deterioration of Illinois’ fiscal condition, a byproduct of its stalemated budget negotiations.”

In a similar statement, Moody’s said that “legislative gridlock has sidetracked efforts not only to address pension needs but also to achieve fiscal balance, allowing a backlog of bills to approach $15 billion, or about 40% of the state’s operating budget. During the past year of fruitless negotiations and partisan wrangling, fundamental credit challenges have intensified enough to warrant a downgrade, regardless of whether a fiscal compromise is reached in an extended session.”

The rating agency added that “the downgrade to Baa3 for Illinois’ GO bonds is consistent with the state’s intensifying pressure from pension liabilities; by our calculation, the state’s unfunded pension liability for its five major plans in aggregate grew 25% in the year ended June 30, 2016, to $251 billion.”

And like S&P, Moody’s kept the state on negative outlook, citing the potential for additional credit weakening “because of a continuing political impasse that has left Illinois increasingly vulnerable to adverse revenue trends and severely underfunded retiree benefit plans.”

The downgrades, which also pushed some debt backed by legislative appropriations into junk, came a day after Illinois’s legislature blew the deadline for approving a compromise budget by a simple majority. Now, it gets even more difficult as it will take a higher threshold, or three fifths majority vote in each legislative chamber, to pass anything which effectively guarantees that one month from today Illinois will be America’s first ever Junk rated state. – Zerohedge

Illinois’ financial problems are just a microcosm of the many states that are run by liberal legislatures, mayors, and Governor’s.  And if you look at the list of the worst run states in the union, you will find that every one is a left leaning political machine that is fiscally irresponsible in nearly every measure.

It is too late for Illinois to stave off bankruptcy, as they are very close to becoming the first state to achieve complete insolvency.  And unless something seriously changes for them politically, no legislator there has the stomach to do what is needed through austerity to keep the state from turning into the next Detroit.

Kenneth Schortgen Jr is a writer for The Daily Economist, Secretsofthefed.com, Roguemoney.net, and Viral Liberty, and hosts the popular youtube podcast on Mondays, Wednesdays and Fridays. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.


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